Associated Press
WASHINGTON — Federal Reserve Chairman Alan Greenspan, who recently warned that economic growth was "very close to zero," is likely to signal this week that more interest rate cuts are on the way.
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| Alan Greenspan said January statistics offer a reason for optimism. |
However, many private analysts say he may also strike a more upbeat tone in his congressional testimony by stressing that the Fed is more optimistic about growth prospects for the second half of this year.
Greenspan today will deliver the Fed’s economic outlook to Congress, an appearance that is being closely watched because the economy’s sharp slowdown has increased recession fears.
The Fed cut interest rates by a full percentage point in January, the first time the central bank has ever moved so quickly during Greenspan’s 13-year tenure, and many analysts say Greenspan will leave no doubt that the central bank is prepared to do more.
"This is his most important talk since the depths of the global economic crisis," said Mark Zandi, chief economist at Economy.com, a Pennsylvania forecasting firm. "His primary message will be that the economy is sputtering and the Fed stands ready to re-ignite the economic engine."
Analysts say Greenspan and his Fed colleagues are performing the same kind of rescue mission they did in fall 1998, when they cut interest rates three times to restore confidence in financial markets badly shaken by the collapse of a number of economies in Asia and Russia.
While promising to do more, Greenspan also is expected to voice more optimism that the current weakness will soon be over, in part because various indicators are flashing signs of an upturn.
The all-important consumer sector seemed to have rebounded in January after a disastrous December, and job growth also was solid in January, even though the unemployment rate ticked up to 4.2 percent.
"There are some good economic reasons to be less negative about the economy," said Sung Won Sohn, chief economist at Wells Fargo in Minneapolis. "I think Greenspan will emphasize that the economy is poised to rebound during the second half of this year."
While a spate of bad economic news since December has shaken consumer confidence, the latest survey of economists by Blue Chip Economic Indicators showed only 5 percent believed the country was in a recession.
The group of 50 top forecasters did shave their growth forecast for this year to 2.1 percent in the new survey, which would be the weakest performance since the last recession ended in 1991. Just two months ago, the Blue Chip consensus had been looking for growth of 3.1 percent this year.
Randell Moore, Blue Chip’s executive editor, said forecasters believed growth would gradually improve, going from an annual rate of just 0.8 percent in the current quarter to 2 percent in the second quarter and rates of 3 percent and 3.5 percent in the final two quarters of the year.
"Economists are seeing lots of signs that things are bottoming out and the seeds of a rebound are being sown," Moore said.
Some analysts said Greenspan, almost as highly regarded in Congress as he is on Wall Street, may come in for some tougher questioning than he normally gets about why the Fed did not react more quickly to reduce rates.
Economists are still looking for further rate cuts following the moves on Jan. 3 and Jan. 31 to reduce the federal funds rate, the interest banks charge each other, in two half-point moves to 5.5 percent.
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